The World Bank expects economic growth in Croatia to accelerate to 3% in 2024. This is primarily due to positive carry-over effects from 2023, stronger foreign demand and an expansive fiscal policy.

“Croatian economic activity remains resilient and annual GDP growth in 2023 remained well above the European Union average at 2.8 per cent. This is largely due to the booming tourism sector and strong inflows of EU funds, supportive fiscal policies, a strong labour market and a large inflow of workers’ remittances, which supported robust growth in private consumption,” according to the World Bank’s Economic Update for emerging market and developing economies (EMDEs) in the Europe and Central Asia region, published on Thursday.

“Growth is expected to accelerate to 3.0 per cent in 2024, driven by positive carry-over effects from 2023, stronger external demand and expansionary fiscal policy. In addition, a strong labour market, reflected in a relatively high share of companies reporting labour shortages and a strong increase in wages, will further support the rise in real incomes. Inflation should continue its downward trend and gradually approach the ECB’s target of close to 2 per cent by early 2025, but risks remain given the upward pressure on wages.”

“Economic activity in the emerging and developing economies of the Europe and Central Asia region is likely to slow this year as a weaker global economy, tight monetary policy, a slowdown in China and lower commodity prices weigh on the region’s growth prospects,” says the World Bank’s Economic Update.

Costs for reconstruction and recovery in Ukraine rise to 486 billion dollars

“Regional growth is expected to slow to 2.8% this year, after picking up significantly to 3.3% by 2023, as the economies of both Russia and war-ravaged Ukraine return to growth and the recovery in Central Asia is more robust.”

Inflation has fallen faster than expected in the emerging and developing economies of Europe and Central Asia, mainly due to the sharp decline in global energy and food prices. Median annual consumer price inflation in the region has fallen to 4.2% by February 2024, down from 15% in early 2023. Nevertheless, the cost of living crisis continues to affect households in 2022, although real incomes have risen over the past year.

In terms of individual countries, the World Bank expects the pace of recovery in Ukraine to slow from 4.8% in 2023 to 3.2% this year, due to a smaller harvest and persistent labour shortages. The country’s economic outlook remains dependent on donor support and the duration of the Russian invasion. According to recent estimates by the World Bank and partner institutions, the cost of reconstruction and recovery in Ukraine has grown to USD 486bn, which is more than twice the size of Ukraine’s pre-war economy in 2021.

Growth in Turkey is also expected to slow to 3% this year – the lowest since 2009, with the exception of the years affected by the pandemic – as macroeconomic consolidation efforts are expected to curb domestic demand. Subdued global oil prices will dampen prospects across Central Asia. According to the World Bank, growth will slow from an estimated 5.5% in 2023 to 4.1 this year.

Private sector faces obstacles

The report includes a special focus chapter on unleashing the power of the private sector. Ivailo Izvorski, the World Bank’s Chief Economist for the Europe and Central Asia region, explains that the private sector is facing obstacles in several countries in the region that are hampering its ability to expand and innovate.

“Several challenges need to be addressed to boost business dynamism. These include improving the competitive environment, reducing government interference in the economy, improving the quality of education and improving the availability of finance for businesses,” he says.

Efforts to promote competition and free markets should focus on reducing barriers to entry and facilitating the exit of unproductive companies. The strong presence of state-owned enterprises is also a major obstacle to creating a level playing field for private companies.

Private companies are also faced with an inadequately trained labour force and large skills gaps that severely limit growth. The high emigration rate of young and skilled labour does not help in the short term. A better educated labour force is associated with higher productivity and can lead to more innovation, according to the World Bank.

The World Bank also notes that bank lending to the private sector is relatively low and has not increased in the last ten years. In addition, lending tends to be more short-term. In order to improve productivity growth and innovation, companies need access to long-term financing, according to the World Bank.